Back to India: Dollars, Rupees and the Big Mac Index
TweetUpdated Dec 6, 2006: This post has been Desipundited. Thanks Kaps.
Updated again Dec 8, 2006: Achyut links to this post with some more thumb rules on what salaries returning desis in engineering industries (EDA, chip design etc) can expect. How much money do you need in India to have a good lifestyle is a question that pops into the minds of people planning their return to India. I did contemplate the same question and I am not sure I have a definitive answer. But I have some decent ideas that I thought I will share. Ramesh Ramanathan famously answered this question saying you need Rs. 5,500,000 (55 Lakhs) per annum ($110,000 approx) . I had written a post on PSFK showing how this type of income would put you amongst the supra-rich in the country using the Big Mac Index:
We had covered Ledbury Research’s estimate of the Indian Luxury market earlier. Ledbury Research had estimated that 53,000 households in this segment and predicted that it would reach 140,000 by 2010. Interestingly, yesterday’s Times of India (TOI) reports
that there are over 1.6 million households in this segment and is
expected to jump to 3 million by 2010. If you dig further, Ledbury
Research has used a $230,000 annual household income for the luxury
segment (approx. 1 Million Rupees in today’s exchange rate) and TOI has used 45 Lakh Rupees annual household income for the luxury segment (approx $100,000 in today’s exchange rate). From my own observations and applying Economist’s purchasing-power-parity principle based Big Mac Index,I can say that the TOI’s definition seems more appropriate – 1 Big Mac in India is approx US $1.30 compared to US’s $3.06 giving a PPP ratio of 2.25, in other words US $ 100, 000 seems like you have US $225,000 in India which is magically similar to the $230,000 number used by Ledbury Research. Therefore, you may want to go by TOI’s interpretation and that makes the luxury market in India seem even more appealing. BTW, Economist, could you please add India to your Big Mac Index?
The reason I feel the Big Mac Index assumes significance is because most things you want to buy at a quality comparable to that in the USA, would be products that are considered premium products in India. For instance, if you want to go to a movie at a cinema theater of USA style quality, you would pay around $3-$4/ticket. If you apply the Big Mac Index PPP of 2.25 you get $6.75-$9/ticket which is what you would pay for a cinema ticket in the USA. Over time, i have observed that this 2.25 rule applies to most things you buy thanks to the level of quality you are looking for. Now, let us look at how some of the major expense items stack up at near-USA-style quality: (assuming you own a home and a car, you can rent a decent home for $600-700/month in Chennai): 1. Full Time Driver – $100-125 per month
2. Part-time Cook – $100-125 per month
3. Part-time Maid – $50-100 per month
4. Petrol or Gasoline expenses – $300-400
5. Child’s Tuition Fee at a top-notch private school – $200-$250/month/child
6. Groceries for a family of 4 – $140-200/month (includes water, milk, newspaper, veggies and regular groceries)
7. Electricity – $100-150/month if you keep your AC on a lot
8. Internet Broadband – $20-40/month depending on speed of the line
9. Cable TV Bill + Landline Phone Bill – $25-50/month
10. Cell Phone Bill – $20-30/month
11. Ironing & Laundry – $10-15/month for 2 going-to-office folks in the house Total at lower end of range (with 2 children) = $1355/month or $16,260 per annum or Rs. 7.3 Lakhs per annum.
Total at higher end of range (with 2 children) = $1735 or $20,820 per annum or Rs. 9.37 Lakhs per annum. Some obvious omissions from this list – clothes, personal grooming, gifts, eating-out,
entertainment, vacations etc. It is hard to pin these down due to varying tastes and spending
patterns. In the software industry, assuming you don’t have some highly-sought-after-esoteric skillset, you can expect to earn Rs. 1 Lakh per year of experience. So someone with 10 years of experience can expect to earn a gross income of Rs. 10 Lakhs per annum. Post taxes (33% as on date), you can get Rs. 6.7 Lakhs per annum. You can see how with this level of salary of approx $21,000 you can lead a US style living. Therefore, IMHO, if you have enough savings (after home/car/furniture/TV..) to generate $25-30,000 per year of income you can comfortably retire in Chennai. In other expensive cities like Bangalore or Mumbai, the figure would be a bit higher.
Came here from Desipundit and your figures seem applicable to only 10% of NRI, rest 90% following rates are more relastic. (I’m not very sure about Chennia, but following rates are appliable in Hydearabad)
House Rent : $400-$500
1. Full Time Driver – $50-75 per month
2. Part-time Cook – $25-50 per month
3. Part-time Maid – $15-30 per month
4. Petrol or Gasoline expenses – $100 – $150
(It depends on individual I agree, considering the IT industry, assuming you travel 50 km per day and the car you drive gives 10 kmpl milage, the maximum cost is 8k (1500 km or 150 lt) .. If you go by realistic figures (applicable to 90% of IT guys) ,Petrol cost wil lbe not more than 4k)
5. Child’s Tuition Fee at a top-notch private school – $200-$250/month/child
6. Groceries for a family of 4 – $140-200/month (includes water, milk, newspaper, veggies and regular groceries)
7. Electricity – $50-75/month if you keep your AC on a lot
8. Internet Broadband – $10-20/month depending on speed of the line
9. Cable TV Bill + Landline Phone Bill +cell phone bill- $40-60/month
11. Ironing & Laundry – $10-15/month for 2 going-to-office folks in the house
Thanks Sudhakar. As regards maids and cooks, the cost depends a lot on how much time you want them working in your house and the needs may vary depending on your family situation.
Great post but the calculations seems to be, well, supra-rich. $300 for gasoline and $150 for electricity is mind bogglging. CHennai is one of the cities where you can’t spend more than 2K on electricity no matter what you do. Anyway, good post.
Govar,
Thanks for stopping by. I have some NRI friends who are spending $150 on electricity – they have a split AC in every room and keep it on most of the time. i guess in the months of december and january it maybe less as it is relativel cooler. As for Gas, again it depends what car you are driving. If you are driving a SUV or a luxury car, it gives you 7-8 KM per litre, you do the math.
Great post.
assuming you own a home and a car, you can rent a decent home for $600-700/month in Chennai
And if you don’t, expect major spike. Especially if you are planning to relocate to Mumbai. Last heard $165,000 – 225,000 range bought you a decent-sized apartment. Rental route could cost you $800 – 1200 a month. Not a whole lot different from middle American cities.
Thanks for the ground level intel – back of the envelope calculations like the one you have spelled out, although having known problems which you point out (like different tastes / different city living costs / not factoring in inflation etc), are the best tool to get any sense of whats needed !!
Will be looking back to read more of your experiences as a returning desi 🙂 !! Keep up the good work.
Thanks a lot for the kind words Shodan. you have brightened my day. You are right. From what i know Mumbai would probably be the most expensive city in India.
Thanks a lot Anonymous. Hope to not dissappoint you when you check back again.
This post is a bit old, but I will still reply.
I don’t think I agree to the cost defined in this post totally.
I lived in the US for 6 years, worked as S/W engg and finally came back to India last year to settle down. I am married and have one kid.
My total expense never exceeds Rs. 50,000 (1 USD is now 40 Rs; it used to be 47 few months back but INR is getting stronger USD is getting weaker). I lead an above avg life and much better life than in the US. We have full time maid, cook, driver and all necessary amenities that one can expect for a comfortable life and stay at home.
It’s much cheaper and easier to live in India. No offense.
Chill..